In this article, SG Wealth Builder is pleased to catch up with Pawel Kuznicki, co-founder of Capital Match, a homegrown Singapore-based peer-to-peer (P2P) lending platform that helps Singapore SMEs obtain loans financed by individual investors.
1) Peer-to-Peer lending is something new in Singapore. In your opinion, what are the potential pitfalls that investors should look out for when choosing the right platform to invest?
The key risk of this type of investment is a default risk of the borrowers. The investors should carefully assess if the information provided to them about the potential borrower is sufficient to make an informed decision on the risk involved and if the proposed interest rate is sufficient to compensate for the risk.
2) How does Capital Match deal with default loans and what mitigating measures can investors expect from Capital Match?
If the default were to happen, we would employ a debt collection agency to attempt to collect the debt from the borrower. The directors of the borrower have to provide personal guarantees so the debt can be collected both from the company and its directors. If the debt collection is unsuccessful, we would then advise lenders if they should start the legal action against the borrower. The cost of debt collection is on us, the cost of subsequent (if any) legal action has to be borne by lenders. In the future we will also introduce secured loans to provide better security to lenders?
3) How does Capital Match differentiates itself from other P2P lending platforms and how much market share do you foresee Capital Match will gain in the next five years?
There are currently only two peer-to-peer lending platforms in Singapore. We believe our key competitive advantage is a credit risk capability allowing more borrowers to get approved (despite potentially unfavourable credit rating etc.) and giving more assurance to investors of the quality of the companies introduced to the platform. The market potential is huge and we do not think there will be much competition initially between P2P lending platforms in Singapore – rather each can grow organically for a few years without much friction.
4) Given the impending regulatory changes proposed by Monetary Authority of Singapore, how do you think it will impact Capital Match?
Impending MAS regulations for crowdfunding do not impact peer-to-peer lending. MAS intends to only regulate crowdfunding that involves exchange or offer of securities – we deal in loan agreements that do not constitute securities.
5) Do you view banks as your direct competitors for SME funding and given that banks are typical slow to adapt to new disruptions, do you foresee that big players of P2P lending (e.g. The Lending Club) will replace the role of banks?
In the segment we operate, banks are not our direct competitors. Most of our customers have difficulties getting bank loans and thus they are looking for alternative source of funding. I believe there will be space for both banks and P2P lending companies – P2P lending emerged because bank have not served a large segment of customers. I believe that consumer and SME/commercial lending will be to a large extent advanced by P2P lending platforms, whereas medium-to-large companies and MNCs will be served by banks.